What is Chapter 13 Bankruptcy?

Have you seen a movie where a person files for bankruptcy and after a brief montage, they have nothing left to their name? In a situation like this, the person has no doubt filed for (an exaggerated form of) Chapter 7 bankruptcy, where the bank and creditors can take much of your personal, nonexempt property in exchange for discharging most or all of your unsecured debts. But is this the only option? Or is there another way to address debts without sacrificing all you have worked so hard for?

Yes, there is, actually, and it is called Chapter 13 bankruptcy. In a proper Chapter 13 bankruptcy filing, a person declares bankruptcy but also that they wish to repay what they can in order to keep what they can. Where Chapter 7 can feel like you have little say in what happens, Chapter 13 is more of a negotiation between you and your creditors.

Chapter 13 bankruptcy has two unique components:

1. Reduction: Rather than wiping debts out completely, you will probably only reduce the majority of them to something much more manageable. The idea is that creditors will benefit more from getting some of what you owe instead of nothing at all. During a meeting of creditors, or individual conferences, you and your bankruptcy attorney will discuss how each of your unsecured debts can be reduced to help you out of this financial pitfall.
2. Repayment: Once all possible reductions have been established, it is time for you to create a repayment plan. Chapter 13 bankruptcy is based on making a new, manageable debt repayment plan that lasts anywhere from 3 to 5 years. With honest effort and steady employment, you should feasibly be able to both complete the repayment plan and keep important pieces of your property, such as your vehicle and home. Once all debts are repaid or 5 years has passed, the debt is discharged.

Chapter 13 also includes the welcome benefit of an automatic stay. Even though some of your debts still exist, creditors and banks are not permitted to contact you for collections. An automatic stay can give you some breathing room during the 3 to 5 years you repay your reduced debts.

Due to the unique qualities of Chapter 13 bankruptcy, qualifying for it and making a repayment plan that actually works can be complicated. If you live in Texas and need help with this important financial process, do not hesitate to contact our Fort Worth bankruptcy attorneys at The Pritchard Law Firm for a free initial consultation. We would be happy to sit down with you and discuss which bankruptcy chapter is right for you and explore alternatives to bankruptcy.